What is Bitcoin? And why is it important?

By Zachary Hage on October 14, 2017


Bitcoin
Source: engadget

In recent years, the financial world and the technological world has been colliding in a new craze, a cryptocurrency known as Bitcoin. According to Lifewire, Bitcoins are a form of digital currency that is created using highly complicated computations. They are valuable strings of code that can not be monitored by any central banking aithority, but are instead maintained by the public. One might imagine that people can use this lack of an financial authority to create huge amounts of bitcoin and cause it to inflate, but there is actually a highly effective sort of honor system in place. The creation and (anonymous) transaction of Bitcoins is stored in a ledger that everybody has access too. Therefore, if one person's ledger differs from everybody elses, such as in the case of simply duplicating the same code repeatedly, it is quickly discovered as being fraudulent. In addition, the process of creating Bitcoin, a.k.a "mining" is so excruciating that it often times isn't even worth it to forge fake Bitcoins.

Date Major event
January 2009 First mining of Bitcoing
October 2009 Bitcoin is valued at 1$ per 1309 Bitcoins
January 2011 Illegal drugs marketplace known as The Silk Road uses Bitcoin as an untraceable way to purchase drugs
June 2013 Bitcoin total market value exceeds $1B. First major theft of Bitcoin (25,000 Bitcoinds)
August 2013 Bitcoin is acknowledged by federal official to be potentially useful currency
December 2014 Microsoft begins accepting Bitcoin as payment
2016 onward Steady rise and boom of Bitcoin value


The transactions occur from one digital wallet to another, esentially acting as a bank account. They are then placed in a transparent personal ledger which is confirmed for validity by anonymous Bitcoin miners. Similarly to banks, there are fees (albeit small) to using Bitcoin. This includes support for those supporting the Bitcoin network, support for the miners, and support for currency exchanges.

Recall the previous statement that Bitcoin mining was excruciating. Mining works by commanding a strong computer to solve complex math problems, which requires the computer to be operating nonstop. Depending on the strength of the computer, one Bitcoin problem can take several days, and the cost of electricity is immense, making it unprofitable on a small scale. However, with many computers working at the same time, the profits of Bitcoin mining can be immense, even after accounting for electricity costs.

Bitcoin Farm
Source: Coin Idol

While this may seem like the currency of the future, Bitcoin has some important characteristics that spawn controversy. One of the biggest reasons is the anonymity of Bitcoin. The anonymity of Bitcoin allows for illicit trades such as drugs and illegal arms to be carried out on a global scale, with no way of tracking either the buyer or the seller. Another point of controversy, mostly among banks and the politicians they lobby, is the lack of central authority. In the physical banking system, banks act as a middle man for out finances, which means less control of our money since it is largely going to them. Bitcoin cuts out this middle man, so it is easy to see why banks and the politicians they lobby don't take kindly to this. It also takes away a large amount of government power, since no government entity controls the production or value regulation of Bitcoin. Essentially, Bitcoin gives people the power to spend and store their wealth however they please. This in itself does not come with drawbacks though, since Bitcoins and Bitcoin transactions are not insured or reversible. If you lose the data to your digital wallet due to a forgotten password or a virus, those highly valuable (currently $5722 per Bitcoin, to be exact) Bitcoins are likely lost forever.





Time Period Price per Bitcoin (U.S Dollars)
August 1st, 2017 $2735.59
September 1st, 2017 $4950.72
October 1st, 2017 $4394.64

Bibliography:

  1. Coindesk. “Bitcoin Price Index - Real-Time Bitcoin Price Charts.” CoinDesk, www.coindesk.com/price/.
  2. Gil, Paul. “Bitcoins: What's the Big Deal?” Lifewire, www.lifewire.com/what-are-bitcoins-2483146.
  3. Regan, Tom. “A Major Investment Company Is Taking Bitcoin Very Seriously.” Engadget, 25 May 2017, www.engadget.com/2017/05/25/major-investment-company-bitcoin-seriously/.
  4. “What Happens When Bitcoin Mining Rewards Diminish To Zero?” Latest Bitcoin News, coinidol.com/what-happens-when-bitcoin-mining-rewards-diminish-to-zero/.
  5. “What Is Bitcoin?” CNNMoney, Cable News Network, money.cnn.com/infographic/technology/what-is-bitcoin/.